A key criticism often levelled at tramway and light rail projects – and major transport schemes in general – is their upfront cost.
Over the years we hope that TAUT has helped to dispel some of the myths that light rail lines don’t offer ‘value for money’, given the multi-generational benefits which far outweigh the initial costs. There is always room for improvement, however, and new technologies offer many useful tools to help improve efficiencies and reduce unnecessary cost and disruption in the development of new lines.
This year’s UK Light Rail Conference in Gateshead saw a lively panel debate tackle the issue of light rail development costs once again. In this latest TAUT round table we have brought those panellists together again, offering over a century’s combined tramway, procurement and engineering experience for an open discussion on the topic.
Q. The term ‘value engineering’ is often used in major transport schemes. But do you think it actually adds value, or is it purely used as a method to take away cost?
Richard Briggs: The question with value engineering is that if it is truly value that you’re seeking from the process, then the answer is ‘yes’. However, you’ve got to look at your requirements and the desired outcomes. Does the project, if it’s a new LRT system, still achieve the objectives that you sought at the start?
If it’s purely cost-cutting, which quite often is labelled as ‘value engineering’, then you’re not really driving value. I’ve been involved in projects, as I’m sure others have, where there has been a pressure on costs and important things have been cut out.
One example was the upgrade of a tramway depot where the existing facility wasn’t fit for purpose. When it was built, one of the ‘value engineering’ omissions was a wheel lathe. Looking down the cost plan, somebody must have said ‘that item has a high capital cost, let’s lose that’ without understanding the operational impact of not having a wheel lathe. This omission didn’t take into account having to get an LRV onto the back of a road haulage vehicle, taking it off-site along a motorway to get the tyres turned at another facility and to then bring it back again. That’s not value in the long-term, instead it cost a huge amount of money each year.
The operator in question had spent quite a few years operating like that before installing a temporary wheel lathe, surrounded by a temporary tent structure. Eventually, as part of the upgrade of the depot, the decision was made to bring the wheel lathe into an extended building to finally get what they should have had from the start.
However, the cost of the operational inconvenience, the temporary structures and the disruption during the upgrade far outweighed the small saving on the capital cost of the original contract.
Mat Taylor: There’s another key aspect and that’s the timing of your value engineering. If you’re doing it late in the project then it’s usually a reaction to something budgetary, in which case it’s too late.
Value engineering has its place and it’s an important process to go through, but it has to be undertaken early at the design stage to make it the most efficient and deliver the best outcome for the project.
Simon Coulthard: I think we’ve all got scars from value engineering where it’s gone wrong. As someone who’s spent a lot of time sponsoring projects, I would ask: do people really know what value engineering means?
We ‘value engineered’ out a track lowering/bridge reconstruction from an electrification project because we thought we could fit the overhead wires underneath an existing bridge. When it came to it, we couldn’t. So quite late in the day we had to undertake a bridge reconstruction which probably cost us quite a bit more than if the planning had been better on the first occasion.
The learning for me was: did the people who originally looked at it understand what they were considering as value engineering? Richard made the point, and if we are just looking at taking cost out and saying ‘fingers crossed, it will be alright’ then we’re not looking at it in the right way.
MT: If project teams focused equally on opportunity as they do risk then you’d value engineer much earlier. So, looking at how you can explore opportunities and realise those as you go along – that’s value engineering.
Colin Robey: I would agree with all of those points, particularly doing it early. To me, the best time to do this is between the announcement of preferred bidder and the letting of the contract, so the contractor has bought into any changes prior to contract signature. You can considerably reduce any savings achieved if the contractor decides that any such change is a variation.
Q. What effect do you think contracting strategy and risk allocation has on cost compared with different ways of doing it, such as the traditional approach of telling the contractor what you want and managing the risk from the client side?
MT: I’m going to be quite controversial here, but I personally dislike alliance contracts. In the UK I don’t think we are mature enough to classify or bring out the real benefits.
I think there’s too much emphasis, by contractors as an example, to win the job at any cost and then allocate people to the project that aren’t necessarily easily placed elsewhere.
If that happens you end up with a poor end result, but because you have an alliance contract you’ve usually got a lengthy period of time in which you don’t need to worry about certain teams within your organisation.
So procurement is key, and we’ve got a long way to go. Five years ago we were probably looking too closely at the Australian model to see how procurement and alliancing could work, but I just don’t think we’re mature enough.
We’ve got to understand that contractors need to make money, they’re under pressure from their boards and stakeholders, and a quality product comes with a cost attached.
I also don’t think that some local authorities have the bodies or expertise to police a contract well enough, so going back to designing in greater detail would give more control. But there’s always a pressure to design, contract and get to tender very quickly, so that design usually isn’t as mature as everyone would like it to be.
There’s huge inefficiencies in some infrastructure contracts as a result of our procurement, and a lot we can improve on.
RB: I feel like when it comes to procurement we go through cycles of favouring the lowest price and then going back to quality. But is there that connectivity between the teams delivering the project and the procurement teams to maximise efficiencies and understand the impacts?
I’ve worked on projects when you start planning for a traditional contract and then the client’s procurement department decides that ‘we might get better value if we switch to a design-and-build to transfer the risk onto the contractor’. If you change the process halfway then it is obviously going to add cost and risk.
Many clients don’t realise that bidding in itself is an expensive process for suppliers. You’re competing against other organisations, so the more bid processes you go through, as you have to account for the cost of bidding, you’ve therefore got to win a certain amount of contracts to make it worth your while and get a return on the investment.
The Manchester Metrolink phased expansion example is really good. You want to try and get a long-term programme of works together and keep that expertise to bring any lessons learnt to benefit the next extensions. The advantage that Metrolink had is that they had a clear vision and brought in a delivery team that could make it happen. You can see that over the years, from the Oldham line to the latest Trafford Park line, how much those extensions have improved as the knowledge has been retained within the teams as they moved from one project to the next.
If you go with a ‘Big Bang’ approach, there is that pressure of bringing in a big design team, a big contracting team and they are all working on multiple projects concurrently. With the latter there’s a risk that lessons learned from one scheme are not necessarily applied to another and resources have to be brought in from outside the industry who may not have the necessary light rail skills.
You also need to make sure that your procurement process can get the right team. There’s clearly a financial squeeze on many local authorities, and one that could last for some time on the back of COVID. Many will no doubt be forced to look for savings, which could result in procurement departments going for a low-cost approach out of necessity.
The impact of that which many people may overlook is that suppliers may have to look at providing inexperienced junior staff or off-shoring design work. Will promoters then get the quality and expertise that a local supply chain can offer?
Light rail is not a huge sector and one of my big concerns is that a lot of schemes are being designed by railway engineers, and that inevitably leads to designs to railway standards. Tramways operate in streets and public environments and you really need specialists that understand that environment and stakeholder management as well as segregated corridors.
What we need is for promoters to think outside the box, creating a longer-term pipeline of projects, and appointing the right supply chain that can drive value and innovation.
SC: While I’m not an expert in contracting strategies, one thing I have learnt from experience is that, as Richard said, there is always a ‘flavour of the month’ and that’s probably what your project will get rather than a great deal of analysis as to what the project needs.
I’ve also learned that you have to get the right people to do the job, and that it’s vital to understand where risk lies and if that’s the appropriate place for it. I’m not always convinced that it’s right to push the risk onto the contractor. If you do you’ll often get back something that you don’t like or something which is incredibly risk averse.
I’m personally in favour of the client taking a bit more of the risk, but potentially directing a bit more than what the traditional contracting strategy would suggest you should do.
RB: There does seem to be pressure to offload all the risk onto the private sector and I think that drives behaviours and culture on a project: are they the best organisations to manage that risk? You really have to understand the risks associated with each procurement model.
There needs to be some real sense in helping educate authorities to think about the question ‘are we going to get better value and are we better placed to hold that risk?’ I am sure that would bring the costs down on some projects.
I really would advise new promoters to speak to existing owners and understand which procurement methodologies have worked and which haven’t, and also to understand the behaviours that a poor contract can generate between the parties.
MT: There is certainly a lack of skillset when it comes to light rail within many procurement teams in local authorities and that has had a significant impact.
Phil Hewitt: You have to have client organisations who really understand what it is they’re trying to buy, what it is they want it to do, and how their contracts actually work.
That is so important. If you don’t have that capability then it is going to go wrong and it will cost you more than you expected it to. There’s no question about that.
Sadly, there is an emerging gap again in the UK. It closed when schemes were being built, but it is growing again.
This article is taken as part of an extract from the feature that originally appeared in TAUT 1008 (December 2021).
Richard Briggs is Deputy Practice Leader for Mott Macdonald’s Light Rapid Transit business and has over 20 years’ experience of public transport scheme development and delivery.
For the past five years he has been seconded into Transport for Wales, developing the South Wales Metro. This project is currently the UK’s biggest application of tram-train technology.
Richard also acts as light rail advisor to many other public sector clients on a range of projects, from traditional tramway schemes to innovative solutions such as catenary-free LRT operation and Very Light Rail.
He is a Fellow of the Permanent Way Institution, a Member of the Institution of Civil Engineers and part of UKTram’s Centre of Excellence.
Simon Coulthard is Network Rail’s Head of Light Rail Knowledge & Development, a position he took up after leading the delivery of the UK Tram-Train Pilot. He now leads a team providing support to new tram-train and light rail schemes; this includes supporting the UK Department for Transport’s ‘Restoring Your Railway’ programme.
Simon has worked in the rail industry for over 30 years, holding several commercial and sponsorship roles, including leading Network Rail’s contractual relationship with major train operators. He also chairs Network Rail’s Eastern Region Fair Culture Panel, sits on UKTram’s Centre of Excellence and is a UITP Ambassador.
Phil Hewitt is an Executive Consultant with WSP, currently seconded to work with Trans- Israel, the government body tasked with development of the future Haifa – Nazareth LRT project.
Before this he was the Director of London Tramlink at Transport for London, Chief Executive of the PFI concessionaire Tramlink Nottingham (which oversaw the delivery of Phase 2 of Nottingham Express Transit) and Director, West Midlands Metro, at Transport for the West Midlands (TfWM).
In 2005 he was a founder member of UKTram, an organisation he chaired until 2011.
Colin Robey has over 55 years’ experience in the rail industry. He was Development Manager for the major schemes to re-open Birmingham Snow Hill Station and extension of the route to Smethwick Galton Bridge, the Robin Hood line from Nottingham to Worksop, the Ivanhoe line from Loughborough to Leicester and the Chase Line from Walsall to Rugeley.
At TfWM he was responsible for rail franchise and tramway concession management, the project to extend the Midland Metro maintenance depot and control centre, and also provided operational input into the central Birmingham and Wolverhampton station extensions.
Colin was a Director of UKTram for seven years, serving as Managing Director between 2013 and 2017. He currently chairs the UKTram Centre of Excellence and is also a Fellow of the Institute of Railway Operators.
Mat Taylor is a Quantity Surveyor and Commercial Manager specialising in the transport sector. In addition to running his consultancy CNNCT, he also sits on the board of Pre Metro Operations Ltd (operator of the Stourbridge Shuttle), is a member of the UKTram Board and Centre of Excellence, and Commercial Director for Precast Advanced Track (PCAT).
With a career spanning over 30 years, Mat has worked on projects ranging from supporting the European Bank and Municipality of Budapest in purchasing a fleet of 40 new trams, through to estimating the extension of the Baku Metro in Azerbaijan.